On July 25, China Merchants Port Holdings Co., a state-owned Chinese port operator, issued a press release that
should make Indian security analysts sit up and take notice. According
to the release, China Merchants Port Holdings Co. agreed to pay $1.12
billion for an 85 percent share of Hambantota port in Sri Lanka for 99
years. A portion of this sum is to be invested in a 49 percent cut of a
new company called the Hambantota International Port Services Company
(HIPS), in which the Sri Lankan government will hold the majority stake.
The remaining $146.342 million is to be spent on operational expenses.
The two companies will split functions at the port, with HIPS in charge
of security operations. This means that HIPS – or Sri Lanka – will be in
control of the military potential of Hambantota.

This fairly anodyne statement has a number of vital implications for three players – India, China, and Sri Lanka itself.

China has long been interested in the commercial and strategic potential
of Hambantota. While the Indian Ocean is itself a crucial space, being
the bridge between Africa and the Middle East on one side and Southeast
Asia on the other, Hambantota is right in the middle of vital energy
supply lines in the Indian Ocean, connecting the Middle East and East
Asia. Not only this, but it is also a strategic link in Xi Jinping’s
ambitious 21st Century Maritime Silk Road – a grand blueprint based on
technical and economic connectivity that spans China, Africa, and
Europe, which could very likely change the face of Eurasian geopolitics,
should it come to fruition. Pouring funds into the development of the
port, then, made sense for China, which is focusing more and more on
expanding its geopolitical presence in the Indian Ocean.

But the reality of China’s vision has been different for Sri Lanka. For
this island nation, Hambantota has been the proverbial millstone around
its neck. While the port city was envisaged as a busy deep sea port,
giving life to a hitherto underdeveloped part of the island nation,
things haven’t gone quite according to plan. Despite its prime location,
Hambantota has struggled to attract either ships or cargo. In January
2017, when the foundation stone for the Sri Lanka-China Industrial Zone
Development project was laid in Mirijjawila, Hambantota, Prime Minister
Ranil Wickremesinghe said that
55 Chinese investors had already committed to investing in the
industrial zone, sowing the seeds for nearly 100,000 jobs. But the
project ran into trouble right from the start – Sri Lankan locals
protested against the loss of their land (the figures on the amount of
land China requested differ; while
a government minister said that 15,000 acres had been requested,
Wickremesinghe said the figure stood at 1,235 acres), and politicians took the opportunity to clamor against what they called a loss of “sovereignty.”

As a result, the zone has barely got off the ground as far as
functionality is concerned. Indeed, the Sri Lankan government called in
the military on Wednesday to
help distribute fuel after the Ceylon Petroleum Corporation (which
controls the bulk of oil supplies across Sri Lanka) called a strike to
oppose efforts to lure foreign companies in to the oil sector. The
strikes came a day after Sri Lanka cleared the revised deal with China
on Hambantota. The port has an oil bunkering facility, along with
container terminals.

Meanwhile, the Mattala Rajapaksa International Airport, which Sri Lanka
built at a cost of $286 million in 2013 in the hopes of bringing
tourists to an isolated, rural part of the country, has earned the
sobriquet of the “world’s emptiest airport.”
Similarly, Hambantota has the stamp of Chinese investment all over it –
multi-lane highways, an industrial park and conference center, and a
gleaming new cricket stadium. The only downside is that nearly
everything lies empty. As a result, what was envisioned as a booming
port city, thriving on international sea lanes and providing employment
to thousands of locals, was transformed into a debt-trap of colossal
proportions. With its debt to China mounting to over $8 billion, and
despite a recent International Monetary Fund (IMF) bailout, Sri Lanka
has had no choice but to revise the deal in a bid to clear the slate
with a power that is possessed of palpably larger economic and
geopolitical clout.

Across the Palk Strait, India has been watching developments at
Hambantota with deepening concern. Long accustomed to perceiving the
Indian Ocean as its own sphere of influence (much as China perceives the
South China Sea for itself), India has been rattled at China’s growing
presence in the region. Indeed, New Delhi has lodged its concerns with
Colombo over the docking of Chinese submarines as far back as 2014.
The to-and-fro has continued until this year, with Sri Lanka – caught
between two large regional rivals – turning down a Chinese request to
dock its submarine in Hambantota in May this year.

For many China-watchers in India, then, the revised deal over the Sri
Lankan port is good news – a symbol that Sri Lanka is working to allay
India’s security concerns as far as China is concerned.

But India would do well to remain wary. China has already established its presence in neighboring Pakistan, with its port at
Gwadar, which is also a vital link in the China-Pakistan Economic
Corridor (CPEC), a flagship project under Xi Jinping’s Belt and Road
Initiative. On the Horn of Africa, too, Beijing has made its presence
felt, with the opening of its first overseas military base at Djibouti on
July 12. In smaller, poorer countries like these, China’s influence is
based heavily on economic leverage, using its formidable financial
resources to create a niche for itself by focusing on industrial
cooperation, environmental protection and the reduction of poverty, and
by occasionally turning a blind eye to regimes that range from
politically corrupt to outright dictatorial.

Meanwhile, tensions have been increasingly on the rise between India and
China since the beginning of 2017, with matters coming to a head with
the ongoing border standoff at Doklam, a disputed plateau in Sikkim.
While all eyes have been turned northwards as a result, there is no
doubt that India has been taking steps to protect itself in the Indian
Ocean as well – allying itself
with the United States and Japan in a clear bid to counter growing
Chinese influence. But these are baby steps as yet – not only has New
Delhi been lethargic in building strategic partnerships, but it lacks
China’s skill in conducting what Brahma Chellaney calls “debt-trap diplomacy.”

As far as Hambantota is concerned, the deal may look promising on paper
for India. But as long as Sri Lanka remains economically at China’s
mercy, New Delhi would be wise to remember that Beijing remains free to
call the shots.

Narayani Basu is an author and freelance journalist with a special
interest in Chinese foreign policy and resource diplomacy in Africa and
Antarctica.